Can You Use A VA Loan To Buy A Condo?

If you’re in the military or a veteran who has earned your certificate of eligibility (COE), you may be thinking about the kind of lifestyle you want and whether you have the flexibility to purchase anything other than a single-family home with your VA home loan. The good news is that you may be able to use a VA loan to buy a condo.

Let’s look at the process of using a VA loan to buy a condo, the benefits of using a VA loan and how to find VA-approved condos.

What Are The Benefits Of Buying A Condo If You’re In The Military?

There are many benefits to living in a condo development if you’re in the military and in the process of buying a home.

Military personnel who spend much of their time on deployment will have little to no exterior maintenance to worry about. Families of military members can also enjoy the playscapes, pools and other amenities included in their condo fees. Condos can also be more affordable than single-family homes.

Can You Buy A Condo With A VA Loan?

Yes, as long as that condo or condo complex has been approved by the Department of Veterans Affairs (VA), the government agency backing the loan. If the condo you want to buy is on the list and you qualify for the VA’s eligibility requirements, you should be able to move forward with your VA loan.

Who’s Eligible For VA Loans?

VA loans have more specific requirements for loan approval than other types of home loans. Home buyers eligible for a VA loan include:

• Active-duty service members
• Reservists
• National Guard personnel
• Veterans
• Qualifying surviving spouses

You must also meet minimum credit score requirements for a VA loan. Many lenders require a score of at least 580.

Benefits Of Using A VA Loan To Buy A Condo

A VA loan can smooth the road to homeownership, especially for first-time home buyers. They eliminate certain roadblocks – like down payments and credit requirements – that eligible service members might otherwise face.

Here are just some of the ways a VA loan can give you an advantage when buying a home.

Low Down Payments

Eligible service members can usually buy a home with a low or no down payment. Lenders may have different policies, but under VA regulations, you’ll only be required to make a down payment if you have a previous VA loan that hasn’t been fully paid back. Like with most mortgages, though, the size of your down payment can affect your closing costs.

No Mortgage Insurance

VA home loan borrowers aren’t required to buy private mortgage insurance (PMI), no matter how low their down payment is. They are, however, required to pay a one-time VA funding fee. Unlike PMI or the FHA’s mortgage insurance premium (MIP), there’s no additional fee tacked on to your mortgage’s monthly mortgage payment.

VA funding fees back the insurance pool underlying the mortgage insurance program. If there’s a default on a VA loan, the insurance payment to the lender comes out of the funding fee pool.

The dollar amount of the funding fee is a percentage of the loan amount, not the purchase price of the home – another way veterans save on loan costs. The VA also allows borrowers to roll the funding fee into the mortgage loan. That way, service members can simply repay the fee as part of their monthly mortgage payment. You’ll be paying interest rates on the fee if you roll it into the home loan, but it’s an option if your savings won’t cover an upfront funding fee payment.

Lenient Credit Requirements

VA loans are also popular because the loans are government-insured, which allows lenders to be more forgiving regarding required credit scores. For example, Rocket Mortgage^® requires a 580 score in many cases for a VA loan but generally requires a 620 score for a conventional conforming loan.

Finding VA-Approved Condos

The VA maintains a database of its approved condo associations and properties. You can generate a local list of VA-approved condos or search by the address of the condo you’re interested in purchasing. A VA-approved condo project will be labeled as “Accepted Without Conditions.”

If the condo you’re interested in is listed under a different label, like “Accepted With Conditions,” “HUD Accepted” or “Unaccepted,” you may want to reach out to a VA loan officer for further explanation or next steps.

How To Get A Condo VA-Approved

If the condo unit you’re interested in isn’t on the VA loan condo approval list, that means you’ll have to navigate the VA approval process. This can significantly delay your home purchase.

You can go one of two routes:

Ask The Condo Board To Seek VA Approval

If the condo board isn’t already on the VA-approved list, you can ask if the condo owners association (COA) will undertake the approval process. This can be a long and complicated process requiring the services and costs of a real estate attorney. If sales within the COA are usually quick and prices for units are high, they may decline.

The COA is basically a type of homeowners association (HOA). The main difference between the two is that the condo association must maintain the exterior of the units in addition to the common functions of an HOA.

Ask Your Mortgage Lender To Get The Condo VA-Approved

You can also try to enlist your lender in your efforts to get your desired condo approved. Working together with information provided by your real estate agent, your lender may be able to move your petition through more efficiently.

Here are some of the documents you and your agent will need to submit to your lender:

• Recorded Condominium Declarations or master deed
• Recorded project plat maps (plans showing property division) and/or condo site plan
• Recorded Articles of Incorporation
• Signed copy of the condominium bylaws
• Meeting minutes from the past two HOA meetings
• Condo budget and balance sheets

These documents will be submitted to the VA’s Regional Loan Center that covers your condo development. They will ask the COA to answer these four important questions:

• Are there any special assessments on the horizon, either pending or anticipated?
• Is the project involved in any litigation, either pending or anticipated?
• Has the project completed all construction?
• How many of the project’s units have been sold from the developer?

These questions are all aimed at evaluating the COA’s financial stability. Be aware that how much a COA must disclose to prospective buyers is a matter of state law. But all states require that the information provided is truthful, so ask questions.

What Affects Condo Eligibility For A VA Loan?

The VA will make its decision after reviewing the condo association’s rules to see if it complies with its regulations. Condos may be denied approval for various reasons, including:

Limits On Resale

The VA will not approve a condo located within an association that includes a right of first refusal clause. These basically mean that the association must approve anyone who would like to buy a unit. Other COA rules that prohibit foreclosures or resale of the property will also likely cause problems.

Age limits can also raise VA scrutiny for those hoping to purchase a unit in an age-restricted development.

Insufficient Owner-Occupancy Or Vacancy Rates

The VA may reject a condo project or development if owner-occupied units are below 50% for the whole development. Similarly, VA-approved condos must hold a vacancy rate under 75%.

HOA Fees Are In Secondary Lien Position

The VA will not approve condo associations that hold a primary lien position if COA or HOA fees go unpaid. Any rule that seeks to prioritize the COA over the VA’s interests could affect eligibility.

Signs Of Financial Stress

There are a number of red flags that can signal that a COA is in financial trouble or, at least, heading that way. These warning signs can include:

• Early stages of development. The VA will be particularly wary of condo properties that are part of master planned communities in the early stages of development. If these communities fail to become popular, amenities promised for the future may fail to materialize and early unit buyers may be stuck with a property than cannot be resold.
• Costs of major repairs. The prospect of major repairs that will require a special assessment to complete (particularly if those repairs will cost more than the COA has in its reserve funds) is a major red flag. This issue of major repairs is of particular concern if the unit you’re considering is in a high-rise building or is regularly exposed to particularly severe elements or environmental stresses.
• Poor management. The VA will also be hesitant to approve a condo development with insufficient cash reserves, an unduly high number of units being used as rentals and a high proportion of units for sale. These are all signs that the building’s management is not doing a good job of managing financial or physical resources so they can retain satisfied owners who contribute to the overall growth of the planned community.

FAQs About VA Financing For Condos

Here are some additional questions people are asking about using a VA loan for a condo.

How can I expedite my VA condo approval?

You can speed up the process of your VA approval status by submitting, along with all of the requested information, an attorney’s opinion that the condo association you’re interested in joining conforms to VA regulations. You’ll want to find an attorney who specializes in real estate law and has experience with VA mortgage loans in particular.

The VA will also generally approve projects that are already approved by the Department of Housing and Urban Development (HUD) and the U.S. Department of Agriculture (USDA).

Why would a condo not be VA-approved?

Condos may be denied for VA approval for several reasons, including if the condo’s HOA institutes a right of first refusal clause, units show various signs of financial distress and if the majority of condo owners are behind on their HOA payments. You have the option to submit a petition with an attorney to the VA or have your mortgage lender intervene.

How long is a VA condo approved for?

When a condo is VA-approved, it’s approved for a lifetime. If a condo association continues to comply with VA regulations, the condo will remain VA-approved with no expiration date.

Which property type cannot be financed by a VA loan?

VA loans cannot be used to purchase investment properties, non-residential properties, land or overseas property. Single-family homes and other types of primary residences are accepted for VA loan use.

The Bottom Line

If you’re interested in buying a condo with a VA loan, look over a list of condo properties on the VA-approved condo list to narrow down your search. But if you’ve got your heart set on a particular condo that isn’t on that list, you may have to work a little harder and wait a little longer to make it happen. To take full advantage of the benefits of a VA loan, make sure you fit all VA requirements and have all your documents in order.

If you’re ready to start the VA loan process, fill out an application today at Rocket Mortgage^®.